Exam 7: Property Acquisitions and Cost Recovery Deductions

W&F Company, a calendar year taxpayer, purchased a total of $204,700 tangible personalty in 2015. How much of this cost can W&F elect to expense under Section 179?

Norwell Company purchased $1,413,200 of new business equipment on July 10, 2014. This was Norwell's only asset purchase for its 2014 taxable year. Compute Norwell's total tax depreciation deduction for this 7-year recovery property.

A firm can use LIFO for computing cost of goods sold for tax purposes only if it uses LIFO for financial reporting purposes.

Mann Inc. paid $7,250 to a leasing agent to negotiate Mann's 36-month lease for 18,000 square feet of space in a new commercial building. For tax purposes, Mann must:

Repair costs incurred to keep a tangible asset in good working order must be capitalized to the cost of the asset.

BriarHill Inc. purchased four items of tangible personalty in 2015 at a total cost of $279,000. BriarHill cannot elect to expense any of the cost of the property under Section 179.

Elakin Inc., a calendar year taxpayer, paid $1,339,000 for machinery (seven-year recovery property) placed in service on August 29, 2014. The machinery was Elakin's only asset purchase during 2014, and Elakin's taxable income before any Section 179 deduction was $14 million. a. Compute Elakin's 2014 cost recovery deduction with respect to the machinery. b. How would your answer change if the cost of the machinery was $2,150,000 instead of $1,339,000? c. How would your answer to a. change if Elakin's taxable income before any Section 179 deduction was $281,400 instead of $14 million?

A firm must capitalize start-up expenditures of a new business in excess of $5,000 but may deduct expansion costs of an existing business.

The expense of adapting an existing asset to a new or different use must be capitalized to the cost of the asset for tax purposes.

Selkie Inc. paid a $2 million lump sum to purchase a business. According to the contract, the seller of the business is prohibited from engaging in a similar business for 18 months. Selkie allocated $300,000 of the purchase price to this covenant not to compete. Selkie may amortize the $300,000 over 15 years.

Hoopin Oil Inc. was allowed to deduct $5.3 million of intangible drilling and development costs on this year's tax return. Which of the following statements is false?

Vane Company, a calendar year taxpayer, incurred the following expenditures in the preoperating phase of a new health and fitness center. Which of the following statements is true?

Pratt Inc. reported $198,300 book depreciation on its financial statements and deducted $256,000 MACRS depreciation on its tax return. As a result, Pratt has a $57,800

Which of the following capitalized cost is not amortizable for tax purposes?

Ingol Inc. was organized on June 1 and began business on September 13. Ingol elected a calendar year for tax purposes. The corporation incurred $60,300 of legal and other professional fees attributable to its formation. How much of these costs can Ingol deduct on its first tax return?

The MACRS calculation ignores any salvage or residual value of an asset.

A basic premise of federal income tax law is that an expense is deductible unless the Internal Revenue Code specifically prohibits the deduction.

Moses Inc. purchased office furniture for $8,200 plus $492 sales tax and a $150 delivery charge. Which of the following is true?

Belsap Inc., a calendar year taxpayer, purchased a total of $59,000 depreciable personalty during May 2015. Which of the following statements is true?

Pyle Inc., a calendar year taxpayer, generated over $10 million taxable income in 2014. Pyle made one asset purchase: new transportation equipment costing $322,000. The equipment has a 5-year recovery period and was placed in service on February 9. Assuming that Pyle made the Section 179 election with respect to the equipment, compute Pyle's 2014 cost recovery deduction.